The Eighth Circuit Court of Appeals (“8^th Circuit”) recently issued a controversial decision concluding that Charter’s VoIP offering qualifies as an “information service” under the Telecommunications Act of 1996 (“the Act”), preempting state regulation of the service. 

Charter had filed suit against the Minnesota Public Utilities Commission (“MPUC”) in federal district court in 2015 arguing that the MPUC had overstepped its authority by imposing regulatory requirements on VoIP providers.  Whereas “telecommunications” offerings are subject to dual regulation, at the state and federal levels, state regulation of “information services” is preempted by federal law.  The district court ruled in favor of Charter, finding that Charter’s service qualified as an “information service” and that MPUC regulation of such service was therefore preempted. 

The 8^th Circuit found that, because the FCC had expressly declined to classify VoIP as either an information service or a telecommunications service, the court may, in its discretion, interpret the Act to determine the appropriate regulatory classification for Charter’s VoIP offering.  The court reasoned that, because Charter’s VoIP service involved a net protocol conversion (from TDM to IP) it necessarily used telecommunications to “transform” communications, and thus qualified as an “information service.”  The 8^th Circuit therefore affirmed the decision of the district court, finding state regulation of Charter’s VoIP service to be preempted and granting summary judgment in favor of Charter.

What does this ruling mean for VoIP providers?

This decision DOES mean that:

• States in the 8^th Circuit are likely preempted from “regulating” VoIP; however, the extent of this deregulatory approach must be aligned with existing precedent which permits states to require VoIP providers to collect public interest fund fees from VoIP providers
• BUT the FCC’s Title II requirements specifically extended to I-VoIP still apply (the FCC extended these requirements to VoIP under its “ancillary authority,” not by defining VoIP services as “telecommunications services”)

This ruling does NOT mean that:

• States currently subjecting VoIP providers to registration requirements and obligations to contribute to various public interest programs can no longer do so; while states are generally prohibited from broadly regulating VoIP, they are entitled to exercise minimal authority over VoIP providers (including requiring them to secure registrations or contribute to state public interest mechanisms)
• The FCC can’t make a determination on the regulatory classification of VoIP.  It can!  The 8^th Circuit decision considers only a state’s authority to regulate VoIP, which does not impact federal authority over VoIP providers.  The FCC could effectively “overrule” the 8^th Circuit’s decision by definitively classifying VoIP as either an “information service” or “telecommunications service” (if the FCC takes this step, the 8^th Circuit decision would be largely meaningless)

The ruling COULD mean that:

• Some states may reconsider their approach to licensing/registration for VoIP providers and/or current “regulatory” requirements as applied to VoIP
• Providers may see a benefit (reduced regulatory burdens) to segregating VoIP operations and traditional telecommunications service offerings
• There’s a potential opportunity to structure IP-based services to avoid classification as traditional “telecommunications” at the state-level (e.g., in line with the FCC’s IP-in-the-Middle precedent where a service that did not undergo a “net” protocol conversion because it originated and terminated in TDM, although it was transmitted in IP) by ensuring a protocol conversion “outside of the carrier’s network” (e.g., at the customer’s premises as opposed to outside of the customer’s home)
• Providers may have an opportunity to challenge the FCC’s extension of Title II requirements to I-VoIP, given the 8^th Circuit’s classification of the service as an unregulated “information service” under the Act

If you have any questions or are interested in discussing potential opportunities created by this decision, please contact the attorney assigned to your account.